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TMI Blog2017 (9) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted under section 143(1) without scrutiny. Considering such facts, we cannot hold that the reasons recorded by the Assessing Officer for issuing notice of reopening lack validity so that the notice for reopening can be terminated at this stage itself on such ground. - Decided against assessee. - Special Civil Application No. 19091 of 2016 - - - Dated:- 20-9-2017 - MR. AKIL KURESHI AND MR. BIREN VAISHNAV, JJ. For The Petitioner : MR JP SHAH, SENIOR COUNSEL WITH MR MANISH J SHAH, ADVOCATE For The Respondent : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice of reopening of the assessment dated 31.3.2016 issued by the respondent Assessing Officer to reopen the petitioner's assessment for the assessment year 2009-2010. 2. Brief facts are as under. The petitioner is a private limited company and is engaged in the business of brokerage. For the assessment year 2009-2010, the petitioner had filed return of income on 29.9.2009 showing the total income of ₹ 5.75 lacs (rounded off). The return was processed under section 143(1) of the Act and accepted without scrutin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the same was brought to his notice by the Assessing Officer of another assessee. Thus, the Assessing Officer in the present case has proceeded on borrowed satisfaction and it is not his own satisfaction that income chargeable to tax has escaped assessment. Counsel took us to the documents on record and contended that it was well settled through series of decisions of various High Courts that with the aid of section 2(22)e of the Act, no amount can be taxed in the hands of the assessee treating it as deemed dividend, if the assessee is not the shareholder of the payee company. In other words, the deeming fiction of a loan or advance being taxed as deemed dividend can be applied only in case of a shareholder of a company and not in case of any one who is not a shareholder. In this respect counsel relied on the decision of Delhi High Court in case of Commissioner of Income Tax v. Ankitech P. Ltd. reported in (2012) 340 ITR 14 (Delhi) and of this Court in case of CIT v. Daisy Packers P. Ltd reported in (2013) 40 taxmann.com 480(Gujarat). Counsel submitted that as held by this Court in case of Gujarat Fluorochemcials Ltd. v. Assistant Commissioner of Incometax reported in (2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court in case of Commissioner of Income tax v. P.V.S. Beedies Pvt. Ltd. reported in (1999) 237 ITR 13 (SC). 8. Coming to the main challenge of the petitioner, we may recall that the return filed by the assessee was not taken in scrutiny and accepted under section 143(1) of the Act. There was therefore, no examination of various issues. The Assessing Officer had not formed any opinion on any such issues. In case of Rajesh Jhaveri Stock Brokers P. Ltd (supra), the Supreme Court observed as under : 16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case. Contention of the petitioner however, is that by virtue of judgment of Delhi High Court in case of Ankitech P. Ltd. (supra) and this Court in case of Daisy Packers P. Ltd (supra), such income cannot be taxed in the hands of a person who is not a shareholder of the company. In case of Ankitech P. Ltd. (supra), Division Bench of Delhi High Court noted that all the conditions stipulated in section 2(22)(e) of the Act were satisfied. However, it was a case where the payment was not made to the shareholders directly but to the assessee which was a concern in which such shareholders were also members/shareholders and they had substantial interest in the assessee. In that view of the matter, the Court held that with the aid of said provision, the amount cannot be taxed in the hands of the assessee because if the intention of the legislature was to tax such loan or advance as deemed dividend in the hands of deeming shareholder, then legislature would have so provided. This decision was followed by this Court in case of Daisy Packers P. Ltd (supra). However, the decision in case of Ankitech P. Ltd. (supra) was considered by the Delhi High Court in case of National Travel S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Register of Members. Obviously then, with the purchase of shares by the firm in the name of its partners, it is the firm which is to be treated as shareholder for the purposes of Section 2 (22)(e) of the Act. 23. It would be difficult to accept the contention of Mr. Syali, predicated on the provision of Companies Act as wherever a partnership firm wants to come out of the rigors of Section 2 (22)(e) it can easily do so by not entering the names of all the members of the partnership firm in the Register of Members. In this case itself, it could be seen that Mr. Naresh Goyal holds 44.58% of shareholding in M/s Jet Air (P) Ltd. as a partner of the appellant firm. On the other hand, the said Mr. Narersh Goyal derives 35% of the profit sharing ratio in the assessee firm. In other words, Mr. Naresh Goyal has substantial interest in the assessee firm too. Thus, he is a person who not only has substantial interest but also holds sufficient influence. Since the partnership firm is the beneficial owner and it has to per force purchase the shares in the name of the partners, it is very easy for a person like him to ensure that only the names of partners in whose name shares are purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and shareholder (Mr. Sanei, karta, in this case) is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. This is the effect of Explanation 3 to the said Section, as noticed above. Therefore, it is no gainsaying that since HUF itself is not the registered shareholder, the provisions of deemed dividend are not attracted. For this reason, judgment in C.P. Sarathy Mudaliar, relied upon by the learned counsel for the appellant, will have no application. That was a judgment rendered in the context of Section 2(6A)( e) of the Income Tax Act, 1922 wherein there was no provision like Explanation 3. 12. The judgment of the Supreme Court in case of Gopal and Sons (HUF) (supra) was cited before this Court in case of Gujarat Mall Management Company Private Limited (supra). The Court referring to the observations of the Supreme Court in paragraph no. 16 and 17, noted above, observed as under : 11. This decision of the Supreme Court in case of Gopal and Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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